Answer to Question #220355 in Microeconomics for Nitin Bhawani

Question

□      Emily has decided to spend one-third of her income on clothing. What is Emily’s demand curve for clothing?

□      Emily’s taste – as reported in the previous question - has now changed. She now realizes the importance of savings and spends only one-tenth of her income on clothing, instead of one-third. How will Emily’s demand curve change? 

Answer 1

(a) The demand curve of Emily is a rectangular hyperbole with unit of elasticity of demand as she spends a fixed fraction on clothing.

(b)Her demand curve will shift to the left since the quantity demanded will be lower.